This week the S&P 500 closed at a record high, above 7,600 for the first time, after rising nine weeks in a row. A handful of giant American tech companies did almost all of the lifting. Then on Friday a single chip company gave a disappointing forecast, and the market lost a trillion dollars of value in an afternoon.

This whippy, top-heavy thing is the index almost everyone owns. It is my default investment, and it’s where I think most people should start. For good reason — over time it returns around 10% per year, and although it has taken major hits with wars, pandemics, and recessions, it always comes back to new highs.

Vanguard’s S&P 500 fund recently became the first exchange-traded fund in history to hold more than a trillion dollars. Everyone is buying the same index, for the same reason: it keeps going up.

At the turn of this year, I went the other way. I moved my core holding out of the standard, cap-weighted S&P 500 — the one nearly everybody owns — and into an equal-weight version of the same 500 companies.

(At the same time, I also bought a slice of small caps, through a Russell 2000 ETF, but that is incidental to this article).

Let me explain what a cap-weighted index is, and the alternative…

The standard S&P 500 is weighted by size: the bigger a company, the more of your money goes into it. After a decade of a few technology giants swallowing the market, the ten largest are now getting on for forty per cent of the entire index — more than they were at the very top of the dotcom bubble.

Seven of them, the ones everyone calls the Magnificent Seven, make up more than a third of the index between them.

So the “diversified” index fund you bought for safety is, actually, a large bet on about ten companies. The other 490 are along for the ride.

Now the counter to this point — these giants are not dotcom fantasies that never earned a penny. They produce around thirty per cent of the whole index’s profits, and they trade at roughly thirty times earnings.

This is expensive, but it’s a long way from the sixty-six times earnings that the biggest names reached in 2000.

Goldman Sachs has pencilled in around three per cent a year forecast for the S&P 500 over the coming decade, against thirteen over the last one, and blames this on the concentration of the index.

So I’m not calling it a bubble. I’m saying something narrower: I would rather not have a third of a fund I bought for diversification quietly turn into a bet on seven companies and an enormous electricity bill — which is roughly what the AI build-out now is.

This week two of those giants said they’re raising tens of billions of dollars to keep paying for it. It might be the best money they ever spend. I just don’t want it to be the thing my whole portfolio rests on, by accident.

Equal weight is the fix. Same 500 companies, same index — but each one gets the same small slice, trimmed back to level four times a year. You still own the giants. You just stop letting a handful of them be the entire story, and you lean towards the 490 that are cheaper.

Here is what these three funds actually did, in sterling:

Two things stand out. The equal-weight version and the small caps had a poor 2025 — up two and three per cent, while the standard index made eight.

That is precisely what I was buying into at the turn of the year: the unloved stuff. Buying what has lagged always feels wrong, which is rather the point of it.

And so far this year, it has held up. Equal weight has matched the plain index almost to the decimal, and the small caps are up sixteen per cent.

It is barely six months and it proves nothing yet, but I believe the equal weight index will outstrip the cap weight, over the next year or so at least. It has already gone from 2.5% last year to 9.6% year to date — this baby is accelerating, I don’t believe the Magnificent Seven will.

There are three popular reasons to do what I’ve done. I think two of them are weak, and I would rather say so than pretend my side is airtight.

The first is the one you hear most: concentration is at a record, so it must snap back. This is the weakest argument in investing. A stretched elastic band tells you it is stretched; it tells you nothing about when it lets go.

Concentration like this can persist for years and get worse — it just did, all the way to this week’s record high.

The second was, honestly, half of my original reasoning, and it has come apart. Small companies feel interest rates far more than the giants do, and a year ago I expected falling rates to carry them up. That bet is dead: the Fed has stopped cutting, inflation is the hottest it has been in nearly three years, and the market now expects rates to rise, not fall.

That is a headwind for exactly the small, indebted companies I leaned into. They have risen this year anyway — which tells you the rate story was never the whole story.

The third is that this is a Trump trade: tariffs and tax cuts favouring home-grown American firms. Maybe. But tariffs help the company that builds and sells at home and clobber the many small ones that import what they make things from. Politics is a terrible foundation for a portfolio, and I hold that reason most loosely of all.

At the start of 2024, Fundstrat’s Tom Lee — a serious analyst, not a chancer — said the small-cap index would jump fifty per cent in a year, on the very argument I have just half-dismantled.

It returned eleven. The standard S&P did twenty-five.

The giants simply kept winning. He is making much the same call for 2026, and this time, so far, it is going his way — which is exactly why I am wary of reading too much into six good months.

Tom Hayes, who runs the Great Hill Capital hedge fund, has spent months making the same broadening case. I think he’s right, time will tell.

One thing I must point out about that small-cap Russell 2000 fund: roughly four in ten of the companies in it make no profit at all — yet. But the Russell trade isn’t the focus of this article, I just mention it because it happened at the same time. And it’s done rather well!

Fair question. Which wins over the next couple of years — equal weight, or the standard index? I don’t know. Nobody does, and the people who sound certain are usually selling something.

What I know is narrower, and more useful. The index I passively owned had quietly turned into an active bet I never actually chose.

Moving to equal weight does not promise me a better return. It just means that whatever happens next, I am not exposed so heavily to the madness of the Magnificent Seven. They have given us fantastic ride up until now, but I fear they may be running out of breath, and I’d rather spread my bets a little.

And no, for anyone who has read me before, I have not stopped picking my own stocks — that is the top layer of what I do, but it’s a smaller one. The boring index core still does most of the heavy lifting. This piece is about that core.

An index fund isn’t a thing you buy and forget. It is a portfolio that quietly changes shape while everyone admires the returns.

Mine just changed shape on purpose.

This is what I’ve done with my own money, and why. It isn’t financial advice, and it isn’t a suggestion that you do the same — I get things wrong, as the rest of this piece makes clear. Do your own research, and remember the value of investments can fall as well as rise.